gray market

Supreme Court To Decide Fate Of Luxury Items Gray Market: Costco v. Omega

This topic is near and dear to my heart because of the legal aspect and the watch aspect. I am not going to present to you a law school style outline of the legal history or implications of this case, but rather what it all means.

Back in 2004 Omega got pissed at Costco for selling Omega watches that it purchased not from Omega as an authorized dealer, but rather from gray market distributors. Costco has some good deals on high-end watches because it legally buys watches from people who have inventory acquired from unsold authorized retailer inventory or otherwise from retailers around the world. Costco is able to buy these slightly older model watches at lower prices. At the same time, they are not bound by Omega's pricing policies that govern authorized dealers.

Omega can't stop Costco from selling the watches because Costco legally bought them from sources that somewhere down the line, legitimately bought them from Omega. So after much bitching and moaning, Omega sued on a copyright claim.

The claim says Costco had no right to sell products with Omega intellectual property without Omega's permission. The first court sided with Costco, and Omega appealed. The second court sided with Omega, and the Costco appealed to the Supreme Court. At this point the Supreme Court doesn't need to hear the case. For the most part, the Supreme Court chooses the cases it wants to hear. Recently, the Supreme Court announced that it would hear the case in the Fall. The case is: Costco Wholesale Corp. v. Omega, S.A., 08-1423.

Aside from being interesting as the parties are companies most people know well, the outcome of the case has some serious implications. On the one hand, the case might strike a serious blow to the life of the gray market, which are lower cost goods that are resold into the market and ultimately sold at lower prices to consumers. On the other hand, the case might validate the gray market, forcing brands like Omega that are highly price sensitive to rethink their business model and reduce their reliance on third party authorized dealers.

The watch world will be looking very closely at the issue, especially as the decision is published in the next year.

Major watch brands are also preempting the gray market issue by making serious changes to the way they do business. This of course also applies to luxury brands that offer products other than just watches. Instead of selling as much product to authorized dealers as possible, the business model of the future for luxury brands may likely be to sell directly to consumers. This strategy would bypass traditional dealer networks altogether.

Ariel Adams publishes the luxury watch review site aBlogtoRead.com.

Tags: case, costco, court, gray market, omega, suit, supreme court

Target Selling Prestige Brands, Whether the Companies Like It Or Not

by Deidre Woollard (RSS feed) —

Filed under: Cosmetics and Fragrance

Does seeing a prestige brand in a store like Target or CVS change your perception of it? More and more it seems that the high-end brands are ending up in the local drugstore and big-box retailer. WWD reports that Clarins, Kiehl's, Origins, Bare Escentuals and Bumble and bumble are now showing up in Target stores (I've also spotted Bumble and bumble at CVS). The WWD article points out that these brands, which spend a lot of money guarding their name and their prestige positioning, are likely ending up in these stores through the so-called gray market. As department stores close stores and consolidate product many of these items end up in Target even though these brands have no official business relationship with Target. Some of these items such as Bare Escentuals and Bumble and bumble are also available on the Target website.

Bare Escentuals has also shown up in Costco and the CEO, Leslie Blodgett, has declared that the company will be working to tighten its supply chain and keep its products out of these stores. Target has a makeup brand of its own. They've worked hard to develop the Sonia Kashuk cosmetics brand. But these high-end brands have an instant prestige. While hair care brands seem to be fighting a losing battle against keeping their brands in salons only (remember those Paul Mitchell ads admonishing consumers about buying the salon brand's products in drugstores), so far high-end skin care and cosmetics have been less likely to show up in your discount store.

Target is also in a unique position in that in some ways it might be attractive to prestige brands. It has an odd cachet, and its association with designers such as Isaac Mizrahi , Liz Lange, Michael Graves and Thomas O'Brien as well as the designers featured through the GO International program have drawn many luxury shoppers to Target to save money on the essentials. But is Target making a mistake by selling the high-end brands against the company's wishes? In the WWD article statements from Origins, Clarins and Bumble and bumble indicate that the brands are not pleased with their products ending up on the mass market. I wonder though, if these brands prove to be successful for Target if a deal might not be in the offing. In the long run it doesn't seem that introducing brands that you can only obtain through the gray market is a good strategy for a large chain. In both CVS and Target I have been excited to find a prestige brand in the stores, only to show up the next time and have it nowhere in sight, which is frustrating. Also, as a consumer, I am aware of the ethical considerations regarding fake merchandise but not so clear on whether or not finding a department store brand in a place it shouldn't be is a bad thing or not. Perhaps it falls to the companies to educate the consumer on why they should purchase these products only from certain retailers.

Source

Tags: bare escentuals, BareEscentuals, bumble and bumble, BumbleAndBumble, clarins, gray market, GrayMarket, target